Whether your Limited Liability Company is approved is at the discretion of the Secretary of State, and it depends on factors like whether you’ve met legal compliance requirements and properly submitted documents. Many business owners like the idea of LLCs because they provide personal asset protection and tax advantages. The formation of an LLC is quite different from the incorporation of a corporation, and in many instances it’s easier and faster. But the amount of time it takes to get approval for your LLC varies on several factors, as well. In this guide we’ll provide you with tips to get you though the formation process, and tell you what time frames you can expect.
Discovering North Carolina
North Carolina’s nickname, the Tar Heel State, comes from the fact that a lot of tar, pitch and turpentine were produced from the state’s pine trees and sold to be used on wooden ships. What does that have to do with heels? Legend says that British soldiers during the Revolutionary War were slowed down when they stepped in North Carolina’s tar.
It shares borders with Verginia, the Atlantic Ocean, Tennessee, Georgia, and of course South Carolina. The Appalachian Mountains run through it, and you can find the Piedmont plateau region, rivers, waterfalls, beaches, swamps, and forested regions. Around 60% of the state is made up of forests and there are around 300 miles of shoreline.
The state’s major natural resource is lumber. And it’s one of the country’s biggest producers of furniture. It also produces minerals and rocks that are used for construction, clay, fish and meat.
Economic Overview of North Carolina
The GSP (Gross State Product) of North Carolina is $565.2 billion, and it had a growth rate of 22.3k% from 2018-2023, which is the 11-highest growth rate in the country. The biggest industries in the state by revenue are Life Insurance & Annuities, Commercial Banking, Hospitals, Cigarette & Tobacco Manufacturing, and New Car Dealers. The biggest companies in the state that employ the most people are the State of North Carolina, Walmart Inc., Duke University, Food Lion, LLC, and Atrium Health. And the top-contributing sectors to the state’s GDP are Manufacturing, Real Estate & Rental & Leasing, Professional, Scientific & Technical Services, Healthcare & Social Assistance, and Finance & Insurance.
Business Environment in North Carolina
Charlotte, North Carolina is considered the second-largest banking center in the U.S.
This is reflected in the survey put out by usnews.com, which ranks it #15 in business environment, #22 in employment, #14 in growth, #23 in affordability and #38 in economic opportunity.
North Carolina’s cost of living index is only 93.8 (the national number is 100.0), but the median household income is $61,972 (national average is $69,717), with a poverty rate of 13.4% (national average is 12.8%).
CNBC has named North Carolina as the top state for business in its yearly competitiveness study, winning the position for the past two years.
State-Specific Regulations and Incentives for Forming an LLC in North Carolina
Listed below are some of the regulations and incentives associated with forming an LLC in North Carolina.
- One North Carolina Fund (OneNC): This program provides grants to reimburse certain capital costs for projects, like purchasing equipment, installation, structural repairs, renovations or construction, or improvements either to equipment or to utility lines. Grants are awarded according to the number of jobs that are created, the level of investment, the location of the project, and the project’s economic impact. In a Tier 3 county, a 1:1 match of local funds and OneNC funds is required, in a Tier 2 county, it’s a 2:1 match, and in a Tier 1 county it’s a 3:1 match.
- Historic Preservation Tax Credit: Owners and lessees of a “certified historic structure” may be eligible to a 15% tax credit if they also qualify for the corresponding federal tax credit, and also spend as much as $10 million during the rehabilitation of the project. If a project spends $10-$20 million, the awarded tax credit is 10% and if the project locates in a Tier 1 or Tier 2 county there’s a 5% bonus.
- Manufacturing Sales and Use Tax Exemptions: Mill equipment and machinery, raw materials, and fuel, electricity and piped natural gas used for manufacturing are exempt.
- Large Fulfillment Facility Tax Exemptions: Large fulfillment facility equipment is exempt from sales and use taxes. An investment of over $100 million, and the creation of 400 jobs during a 5 year period is required.
- Tax Exemptions for Data Centers: Support equipment and electricity at eligible data centers is exempt. They must make an investment of $75 million in 5 years. Electricity, as well as business personal property at internet data centers is exempt if they’re located in a tier one or three county and make an investment of $250 million. And the computer software at any datacenter is also exempt from sales and used taxes.
- Other Tax Exemptions: Pollution abatement and control equipment is exempt, as well as equipment used for Research and Development in engineering, physical or life science companies, industrial machinery refurbishing, and software publishers is exempt. Equipment used in metal work fabrication for companies with annual gross receipts of at least $8 million is also exempt.
- Utility Account Grants: This program provides funding for projects locating in less-developed and rural counties. They’re awarded for projects involving improvements to infrastructure. A private or local match minimum of 25% of the awarded grant amount is necessary if the project isn’t located in one of the state’s distressed counties.
- North Carolina Biotechnology Center Economic Development Award: This is a grant based on the performance to support life science company projects, and grant amounts are up to $100,000 per project.
- Public Infrastructure and Transportation Grants: There are a number of programs in North Carolina for funding public infrastructure development, which include the Community Development Block Grant Economic Development Program, NCDOT’s Rail Industrial Access Program, the Rural Division’s Economic Infrastructure Program and the North Carolina Golden Leaf grants for infrastructure.
- Customized Training Program: This program supplies customized assistance for training and supports full-time production, as well as direct customer service positions. Some of the resources they offer include help with instructional design and costs, training assessment, and training delivery. It can also help with recruitment and screening potential employees, as well as testing services.
- City and County Grants: Tax abatements on local property taxes are banned in the state, and instead they offer cash grants from city and county governments to encourage capital investment and job creation. They’re typically based on the amount of local revenue the project will generate, and they work as refunds for property taxes that the project generates. They vary widely from city to city and county to county.
- Job Development Investment Grant (JDIG): This program provides grants to new or expanding businesses to alleviate the cost of moving to or expanding in North Carolina, and it’s performance-based. Some of the qualifying factors include the project’s location, the number of jobs created during the first 5 years, and their average wage. It’s also dependent on the county tier the project is located in. If a project invests a minimum of $500 million and creates a minimum of 1,750 jobs, it’s designated as a “high-yield” project and could receive reimbursements of as much as 90% of the newly created personal income withholdings for up to 20 years. Projects that make a minimum investment of $1 billion, creating a minimum of 3,000 jobs are considered transformative and could be awarded as much as 90% of the newly created personal income withholdings for 30 years. Projects can also be designated as transitional if they invest $1 billion and create 1,750 positions during Phase 1. After that, they have the option during the first 36 months to increase the investment in private funds to $3 billion and create 3,875 jobs.
Pros and Cons of Establishing an LLC in North Carolina
North Carolina has exhibited an uncanny economic recovery. Its economy bounced back and had a 6.7% growth rate in 2021, and that ability to recover and heal itself is great news for entrepreneurs and small business owners.
There’s a low cost of living and doing business in the state. In most places transportation, groceries and even housing cost less than many other places in the country. The biggest expense to mention when it comes to the cost of doing business is healthcare, which in North Carolina is a little above average.
Tax rates in the state are relatively low. The top corporate income tax tier is 2.5%, the sales tax rate is 6.98%, and the individual tax rate is 4.99%, which means you can enjoy a low tax rate whether your LLC is taxed as a corporation or a pass-through entity.
It’s not all sunshine and roses, though.
The labor market is pretty competitive in North Carolina. Unemployment rates are falling, which means that businesses are having trouble filling positions. But it also means that your business will have to find a way to compete with other big businesses and offer job incentives to attract new workers and make them choose you.
While the state’s economy is recovering from the pandemic, the hospitality and leisure industries are still lagging behind. That’s the case all across various sections of America, but if you’re planning on starting a new business in these sectors, it’s probably not a good idea in North Carolina. Maybe find a state where these sectors are thriving.
Procedure of Establishing an LLC in North Carolina
This section will explain all of the documents you need, and provide you with a step-by-step guide on how to start a Limited Liability Company in North Carolina.
Necessary Documentation for Filing an LLC in North Carolina
You’ll need to gather the following documents to file an LLC:
- Articles of Organization: This is the primary formation document in North Carolina, and it works as your application. It asks for detailed information about your Limited Liability Company, like its management style, a list of LLC members and contact information for each of them, your business’s name, address, duration, purpose, and registered agent.
- Operating Agreement: Drafting an operating agreement isn’t a legal requirement, but it’s highly recommended. It provides your LLC members with instructions on how they should perform their duties and run your business. It lists the contributions of each member, details the distribution of profits and losses, and includes a section that explains what to do if a member dies, plus information about how to remove or add a new member. It also provides information for the managers, like voting rights and meeting schedules.
- Name Reservation Application: Upon choosing a business name, you must file an Application to Reserve a Business Entity Name, which will reserve the business name with the Secretary of State for 120 days.
- Initial Report: LLCs in North Carolina are required to file an Annual Report, which updates their business information with the Secretary of State’s office on a yearly basis. The first such filing is called an initial report and is submitted with your Articles of Organization.
- Business License: You’ll need state, local and county business licenses. Check in with county and municipal clerks to find out about licenses and permits in your area.
- Tax Registration: Depending on the type of LLC you choose and what goods and services you sell, you’ll be required to register for different taxes in the state. This requires registering your business with the North Carolina Department of Revenue (DOR).
- Employer Identification Number (EIN): Your business will need an Employer Identification Number (EIN) to fill out tax and government documents, hire employees or open a business bank account. You can apply for one from the IRS website for free.
Legal Requirements for Starting an LLC in North Carolina
Here are the steps to start a North Carolina LLC.
- Acquire an Articles of Organization Form: This is your application to establish an LLC, and it’s available online and in-person from the Secretary of State.
- Select a Name for Your LLC: The name of your company cannot be too close to any other business name that is already in use in the state. Use the business name database from the Secretary of State to see whether your chosen name is available for use. After deciding on an acceptable name for your business, you must submit an Application to Reserve Business Name form.
- Pick a Registered Agent: The state requires LLCs to have registered agents. A registered agent is someone who will receive legal notices and correspondence from government organizations at a physical address on behalf of your company. You’re free to either pick a trusted person for the job, such as a friend or family member, or choose a professional registered agent service for added assurance.
- Select Your LLC Address: The address of your LLC is significant since it will be public record. If you don’t want your home address made public, don’t use it as your business address since it will pose security and privacy issues. You may request to use the address of your registered agent, or consider using a virtual address in lieu of your personal address.
- Sign and Submit Your Articles of Organization: After ensuring that every piece of information is included and accurate, proceed with submitting the form to the North Carolina Secretary of State Business Registration Division.
Time Frame for Establishing an LLC in North Carolina
Now that you’ve learned how to start your LLC, we’ll go over the formation timeline in North Carolina.
First, let’s discuss the different times. Processing time refers to the time it takes for government workers to review your documents and enter them into the system. Approval time covers the entirety of the formation process from the time you’ve submitted your documents to the Secretary of State to the time your LLC is approved, which includes processing time.
How Long Does the Initial Paperwork Take in the State of North Carolina?
Approval times to file by mail are 2-3 weeks, or 2-5 business days if you file online.
Processing Times in the State of North Carolina
Processing times for both mail and online filing are 2-5 business days.
Common Delays in the LLC Formation Process in North Carolina
There are several factors that could slow down the formation process, and you can’t always avoid them so it’s important to learn about them.
- High Volume of Filings: If the Secretary of State is experiencing a high volume of filings, it can cause a delay as they soldier through the backlog. They typically experience the highest filing volumes at the beginning and end of the year. You may not be able to avoid filing during those times, however.
- Timing: The Secretary of State’s office won’t process filings on weekends or government holidays, so it’s best to avoid filing directly before or on those days.
- Issues with Your Documents: Your documents can’t contain incorrect information, and all the sections must be filled in. They also need to have the right amount of copies, and contain all of the right paperwork. If any of those things goes awry, the Secretary of State could reject them.
Expedited Processing for LLC Formation in North Carolina
Looking for a speedy LLC formation option? Then expedited processing is your best bet. Here’s what you need to know about expedited processing in North Carolina.
What Are the Expedited Options Available?
There are two expedited processing options available in the state: 24-hour processing and Same- Day processing.
These options are available whether you file by mail or online. However, if you file by mail and choose expedited processing, then you need to submit a cover letter along with your other documents and overnight them to the Secretary of State. If you choose the same-day processing option, then it must be received by noon.
Additional Costs for Expedited Services in North Carolina
You must pay an extra fee for expedited services. It’s $100 extra in fees for 24-hour processing and $200 extra for same-day processing.
Comparing LLC Formation Time Frame in North Carolina with Other States
To fully grasp the speed of North Carolina’s formation times, you must compare them with the time frames of other states and look at the big picture. Here’s a comparison with other states to help you choose whether to form a domestic or foreign LLC.
Brief Comparison with Key States
In North Carolina, processing times for both mail and online filing take between 2-5 business days, and there are both same-day and 24-hour expedited processing options.
How does that compare to other states? Well, there are both faster and slower options out there.
When it comes to expedited processing, Delaware, Michigan, Montana, Nevada and West Virginia have 1 hour options, New York has a 2 hour option, Louisiana has a 2-4 hour option, and California has a 4 hour option, all of which are faster than North Carolina’s same-day and 24-hour options. On the other side of that, there are lots of states that don’t supply any expedited filing options. In Maryland, the expedited option takes 7 whole days, and in Arizona it’s five days.
Alabama, Alaska, Colorado, Kansas, Kentucky, Minnesota, Missouri, New York, South Dakota, Tennessee, Wisconsin and Wyoming all have immediate processing for online filing, which is faster. But Washington’s online processing takes 12-14 days, Maryland’s takes 2 weeks, Texas’s takes 13-15 days and Arizona’s takes 14-16 days, all of which are considerably slower.
In both Ohio and Kentucky, it takes 1 day to process mail filings, while Alabama, Massachusetts and South Dakota have 1-2 day processing for mail filings. In contrast, New York’s processing time for mail filings is 8 months, Maryland’s is 5-8 weeks, and Pennsylvania’s is 6 weeks.
Why is North Carolina a Favorable Place for Forming an LLC?
North Carolina is a suitable place to form an LLC because it’s shown that its economy can quickly recover from calamity, it has low taxes (both personal and corporate), and it has a low cost of living and business cost.
